UCB credit profile improves in H2FY24, says financial stability report

The financial and asset quality profiles of Urban Cooperative Banks (UCBs) improved further with gross non-performing assets (NPAs) declining to 8.8 per cent at the end of March 2024 from 10.9 per cent in September 2023. Their net NPAs also fell about 4.9 per cent to 2.8 per cent, according to the Financial Stability Report (FSR) of the Reserve Bank of India (RBI) for June 2024.

UCB executives said besides regulatory push for effective asset quality management, the upturn in credit growth and improvement in margins have helped enhance provision cover.

The trend in provisioning coverage ratio (PCR) also showed improvement in the post-pandemic period. It rose from 62.3 per cent in September 2023 to 70.1 per cent in March 2024, FSR data showed.

Another senior executive said along with increasing the provisions for bad loans, there is also a gradual hike in provisioning for standard assets. RBI has harmonised provisioning norms for standard assets to enhance robustness of books. For example, tier-I UCBs — those with deposits up to Rs 100 crore — have to achieve standard asset provision of 0.4 per cent by March 2025 from earlier requirement of 0.25 per cent.

Turning to financial parameters, FSR said net interest margins (NIMs) inched up from about 3.3 per cent in September 2023 to 3.7 per cent in March 2024.

The NIM improvement was a combination of the effect of transmission of policy repo rate and ability to price loans at higher levels in post-Covid demand recovery phase, UCB executives said.

However, the return on equity declined from 9.7 per cent in September 2023 to 7.9 per cent in March 2024.

The capital position of UCBs has been continuously improving in the post-pandemic period, with their CRAR [Capital to Risk (Weighted) Assets Ratio] increasing to 17.5 per cent in March 2024 from 16.9 per cent in September 2023 and 16.5 per cent in March 2023, FSR data showed.